EU Vows to Hit Russia With New Sanctions If Ukraine Worsens

Aug. 31 (Bloomberg) -- European Union governments agreed to impose tougher sanctions on Russia, possibly targeting its energy and finance industries, if the conflict in Ukraine which already left thousands dead worsens.

Leaders in the 28-member bloc gave the European Commission a week to deliver proposals for the penalties. The EU left open the precise trigger for further sanctions, contrasting with a four-point ultimatum issued to Russian President Vladimir Putin on June 27 that preceded the latest curbs.

“The situation has very much escalated over the last two days and if this continues we will decide on further sanctions within the week,” German Chancellor Angela Merkel told reporters after the summit in Brussels.

Putin said “substantive” talks on political issues and “statehood” status of south-east Ukraine were needed to resolve the crisis, RIA Novosti reported, citing a Channel One TV interview taped ahead of the EU summit and aired today. His spokesman Dmitry Peskov later told reporters in Chelyabinsk that Putin isn’t seeking “statehood” for Ukraine’s southeast.

The EU meeting took place as Ukraine’s armed forces were retreating in some areas after NATO said Russia deployed troops and advanced equipment in the country. Russia denies that it’s involved in the fighting in the neighboring country.

Ukraine Territory

“We are close to the point of no return,” Ukrainian President Petro Poroshenko told reporters at the EU summit. “Thousands of foreign troops and hundreds of foreign tanks are now on the territory of Ukraine.”

The U.S. welcomed the EU’s decision and is working closely with the bloc and other partners to “hold Russia accountable for its illegal actions in Ukraine, including through additional economic sanctions,” Caitlin Hayden, a spokeswoman for the White House National Security Council, said in a statement. The administration called on Russia “to immediately” remove its military from Ukraine and end supporting the separatists, according to the statement.

While Putin said he has an agreement with Poroshenko on a peaceful solution of the conflict, it’s impossible to predict when the crisis will end as the situation in the country is complicated by the political campaign ahead of Oct. 26 parliamentary elections, he said in the TV interview.

Captives of Illusions

Those who expect Ukrainian rebels to sit and wait for talks while the area is torn by fighting are captives of their illusions, Putin said.

“We must strive toward implementing the plan we agreed upon,” he said. “We must immediately commence substantive talks and not only on technical issues, but also on the political organization of society and the statehood status of south-east Ukraine in order to serve the interests of people living there.”

Earlier, EU leaders selected Polish Prime Minister Donald Tusk as the bloc’s next president and Italian Foreign Minister Federica Mogherini as chief diplomat after a bitter contest that showed the EU’s divisions on how to deal with the Kremlin. Tusk has pushed for tougher sanctions on Russia while Mogherini has favored diplomacy.

The EU and the U.S. have already slapped visa bans and asset freezes on Russian individuals and companies, and since July have imposed steadily tougher sanctions targeting the country’s energy, finance and defense industries.

Military Aid

Leaders disagreed about possible military assistance to Ukraine, with Lithuanian President Dalia Grybauskaite telling reporters before the meeting: “We need militarily to support and send military materials to Ukraine.”

Merkel said she opposes sending arms to Ukraine because it would be a signal the conflict has a military solution. “But I don’t think that,” she said.

U.S. Senator Robert Menendez, the chairman of the Committee on Foreign Relations, told CNN from Kiev that Ukrainians should be given “a fighting chance to defend themselves.”

Forces there should be supplied with defensive weapons and Russia should be hit with wider “sectoral sanctions,” such as targeting its financial services, defense and energy industries he said.

Trilateral Meeting

Poroshenko called for military and technical assistance for Ukraine from the EU. He said there will be a trilateral contact group meeting tomorrow with the Organization for Security and Cooperation in Europe, Ukrainian ex-President Leonid Kuchma and Russian ambassador Mikhail Zurabov.

Talks will focus on Ukrainian “hostages” held in Russia, the OSCE monitoring mission, and “I cross my fingers, I hope it will be a cease-fire,” he said, adding that he expects to publish a draft peace plan next week.

European Commission President Jose Barroso said that more than 1 billion euros ($1.3 billion) in loans could be released to Ukraine in the coming months. This is part of the 11 billion euro package announced earlier.

Fighting in easternmost Ukraine continued and the situation there remained “tense,” Andriy Lysenko, the spokesman for Ukrainian military, told reporters in Kiev today.

Russian Troops

Ukrainian soldiers are withdrawing from a rebel encirclement near Ilovaysk, which would have been impossible for the separatists to set up without “powerful support of Russian troops,” Lysenko said.

Two Ukrainian coast guard cutters were attacked near Mariupol, Ohel Sydorenko, head of Novoazovsk district administration was cited as saying by 0629.com.ua website. The military wasn’t able to confirm the report. At least one of the cutters was on fire, according to media reports.

The death toll in the conflict is almost 2,600, the United Nations said. A total of 765 Ukrainian troops have been killed in the fighting, the government said. About 100 rebels have been killed in the past 24 hours, Lysenko said.